TORONTO, Jan 26 (Reuters) - Toronto’s main stock index rebounded on Monday as a rally in the financial and energy sectors offset pressure from the materials group.

A recovery in beaten-down bank shares overseas helped set the direction on the Toronto Stock Exchange, where financial shares account for about a third of the index.

Rising sentiment brought on by a surge in Dutch financial giant ING Groep ING.AS, which said it would tap into government guarantees, and by Britain’s Barclays (BARC.L), which flagged a strong start to the year, was enough to maintain a positive tone in Toronto’s financials group for much of the session. [ID:nLQ150771]

The heavily weighted oil and gas group rose 1.3 percent even as oil prices gave way to expectations that U.S. oil stockpiles were set to build.

The two groups, which make up more than half the index’s weighting, helped the S&P/TSX composite index .GSPTSE eke out a modest gain of 28.54 points, or 0.33 percent, to finish at 8,656.51. Seven of the market’s 10 main groups advanced as the market clawed back from a 1.2 percent fall, but remained well off its early 2.2 percent gain.

Among the key stocks behind Monday’s rise were Royal Bank of Canada (RY.TO), up 5.1 percent at C$29.50, and EnCana Corp (ECA.TO), which gained 1 percent to C$55.06.

Despite gold prices pushing above $900 an ounce, gold producers were major decliners, with the broader materials sector off 1.7 percent. The gold subindex was down 3.36 percent, reversing some of Friday’s sharp gains. Barrick Gold (ABX.TO) was off 4.7 percent at C$46.51.

“You’re going to have this period of volatility but the market is at the process of putting in a bottom. We are at the lower end of the trading range of where we’ve been,” said Peter Chandler, senior vice-president at Canaccord Capital in Waterloo, Ontario.

“All things being equal, the market will probably start to move higher again, at least probably within its trading range.”

U.S. stocks were supported by a rare dose of good economic news and optimism over a $68 billion takeover in the drug industry [ID:nN26293194], which offset a warning about the year ahead from Caterpillar (CAT.N) and worries over the state of the financial sector.

Markets are now looking ahead to Tuesday afternoon’s budget, which will outline a series of stimulus measures to deal with the effects of the global economic crisis. The government pledged on Monday to “spend what is necessary” to fix the economy.

Earlier the government said the budget will contain C$7 billion in infrastructure funds for the next two years.

“There’s a lot of anticipation of what the budget has to offer. But I don’t think that there are likely to be a lot of surprises out of the budget because the Conservatives have been very good at front-running the major issues in parts of the budget,” said Chandler.